We live in the world of anticipated rate hikes. The stock market does not seem to like that at all. Although there are many other factors such as war, unprecedented inflation, and maybe even echos of pandemic, we wanted to see how $SPY and $QQQ performed historically in the short term after the rate hikes.
To do so we have backtested Rate Hikes back from 2015 to 2018. Overall there were 9 hikes (the data is taken from the Bankrate website).
- 1 x 0.25 in 2015
- 1 x 0.25 in 2016
- 3 x 0.25 in 2017
- 4 x 0.25 in 2018
In this study, we have backtested 2 strategies. Each strategy trades/invests $10K for every rate hike.
- Strategy 1: SHORT on the announcement date and hold 1 week
- Strategy 2: SHORT on the announcement date, exit EOD, repeat for 1 week
The Results
Shorting every day and closing the position EOD came out a bit better overall. It also protects you from sudden spikes overnight.
- SPY: $1,658.7 total gain vs. $1,626.9 for 2015-2018
- QQQ: $1,634.0 total gain vs. $1,353.3 for 2015-2018
Below is a breakdown by each year: